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Consultants have seized upon their Next Big Idea: You. Having seen clients pull back on discretionary spending, consulting firms now regard the finance department as a still-warm, if not hot, target for their services, thanks to the slimming down most departments have endured. IBM, for example, plans to approach CFOs “with some pretty bold claims” about how much and how fast its new business-analytics unit can cut costs in areas like financial reporting, says Fred Balboni, head of the unit. Tata Consultancy Services is offering finance chiefs a two- to three-week “diagnosis period” to help assess where the quick fixes lie, and says many projects can pay for themselves within two quarters. Still others are benefiting from clients’ fear, offering reassurance to CFOs who must supervise activities outside their expertise, such as international expansion.

Services specific to CFOs are “the bright spots” for firms like Accenture, Ernst & Young, and many smaller ones, says Derek Smith, director of research for Kennedy Consulting and Advisory, a market-research provider. That’s relative, to be sure: Kennedy projects just 2% growth in finance-management consulting in 2009, down from 16% in 2008. Still, in some areas, the growth can be called dramatic. For example, some 42% of executives who began an outsourcing relationship this year report using an adviser to help structure it, according to a recent Black Book of Outsourcing report, up from just 16% last year.

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Even in high-demand areas, however, consulting is still a buyer’s market. In IT consulting, for example, bill rates are down anywhere from 5% to 15%, says James Friedman, an analyst with Susquehanna International Group who follows Accenture and other IT consulting firms. CFOs also have “a fair amount of leverage” in negotiating with firms that work on a contingency-fee basis, notes Steve Crane, CFO of ModusLink Global Solutions. In general, clients are pressing for “the ROI to be a lot more visible and a lot shorter,” says Mark Goodburn, vice chair for KPMG’s advisory services.

Finance chiefs thus have an opportunity to get more bang than usual for the consulting buck, but only if they structure projects to make consultants’ time as efficient as possible. If an engagement drags on without a clear sense of direction or tangible achievements, lower hourly rates can still add up — and perhaps culminate in a potentially far greater cost: outright failure. CFOs, in short, need to select the best consultant for the job, crisply define the tasks to be accomplished, break them into independent phases so that spending can be turned off at any point, and lean on internal staff to both monitor and streamline the process.

To Buy or Not to BuyBuying smart begins with deciding whether you truly need to hire a consultant. CFO Holly Koeppel, for one, has progressively challenged her staff at American Electric Power (AEP) to take on roles she once used consultants for, such as leading strategic-planning exercises and managing budget overhauls. That has saved untold millions of dollars, she says, and such processes “have actually gone more smoothly, because people are more engaged” with an internal expert at the helm rather than an outside consultant.

But when a project is too risky, or too important to be handled by nonexperts, many finance chiefs say they won’t hesitate to buy what they need. Jack Judd, CFO of data storage provider Compellent, says he never considered using internal staff to organize tax records and plot tax strategy as the New York Stock Exchange–traded company approaches profitability. That approach would have been “very impractical” given that his small staff lacks a tax expert, and could have resulted in lost tax savings if the job wasn’t done right, he says.

Likewise, Sentinel Group CFO Ryan Ziemann hired IBM (and its software) to help amplify the company’s ability to detect fraud in medical claims, its main business line. “We theoretically could have developed this in-house, but it would have taken years of commitment and resources. The value lies in getting deep knowledge and expertise, plus avoiding pitfalls” that can be costly in themselves, says Ziemann.

Finding the right consultant is decision number two, and arguably the most difficult one. Many CFOs say they rely primarily on references from their colleagues to identify, and then interview, three or four firms. Then they contact more-formal references as they narrow down the process. Doing this well takes no little effort, however. ModusLink Global Solutions CFO Steve Crane says he always does reference checks to make sure that a consultant has some experience, but he also always worries about getting overly optimistic reports from company-provided sources. To help cut to the chase and uncover any glitches that may have occurred, Crane likes to ask: “What did you learn from the project that you’d want to do differently next time?”

A Piece at a Time

Happily, the consequences of hiring the wrong consultant are smaller than ever, as most projects these days are structured into discrete phases so that each part is, in a sense, a trial run. “Put off that long-term commitment as long as possible, and at least until you’ve seen the results of the upfront work,” advises Ziemann. He says it is particularly important to push back when firms ask for upfront fees or the promise of more work if initial milestones are met, since you may decide along the way that “even if they met their milestones, it was more pain than it was worth.”

Structuring a consulting project into phases is the approach CFO Karen Cambray is taking at Zeemote, a small private company that manufactures and distributes gaming controllers for cell phones. Zeemote was in the process of readying products for sale in Europe when Cambray joined in September 2008, and she wanted to make sure the legal aspects were addressed properly. While she “could have spent a lot of time researching and networking” to get the answers, she decided she was safer using outside help and hired High Street Partners. While there was not, in fact, much wiggle room on the rate, Cambray kept a lid on costs by initially hiring the consultancy only to write a white paper on the pros and cons of setting up an office in various countries. Then, satisfied with that, she hired High Street to help with the administrative work of registering in the United Kingdom, the country she chose.

Cambray is now considering using the firm’s outsourcing capacity for administrative tasks like processing European payrolls. Throughout the process, she says she and her controller look at monthly consulting charges and compare them with their estimate of the time it would take to do something internally, “and we reassess with every new project we add.”

Consulting firms say this type of thinking is now par for the course. “Less today is better than more tomorrow; clients are aiming to do smaller projects rather than big bang,” says David Michelson, head of Tata’s business-process and change-management consulting practice in North America. Projects involving outsourcing (and often a new source of cash) are illustrative, with the time-consuming strategy piece getting short shrift.

“A year and a half ago, clients would have had big internal debates about whether to do an internal captive or go offshore, or to just improve existing processes,” says Bob Cecil, global executive director for Equaterra’s business and financial processes group. “Now executives aren’t tolerating a lot of back-and-forth to get everyone on board; they want to move faster to a solution.”

Staff Time Counts

Finally, a key ingredient of a successful consulting engagement is taking a realistic view of how much staff time it will take to manage the consultants. Compellent’s Judd just hired Grant Thornton to do a “382 study” (as in Section 382 of the Internal Revenue Code) to maximize net operating loss carryovers, an R&D tax credit study, and some sales tax work. “Just on the R&D piece, the credit from the federal government could be 10 to 20 times what we’ll pay the consultant, so it’s a real no-brainer to do it,” he says. But with the work slated to span six to nine months, Judd is keeping an eagle eye on how many hours he’s being billed for. Without formal milestones in the contract, “the number-one thing” is to dedicate a staff person to make sure consultants “aren’t wasting time when they’re on site,” says Judd. To that end, he waited until year-end reporting was over so that one of his directors of finance who “is not a tax expert but knows everything Grant Thornton needs to provide” could take on the job of monitoring the consultants.

The cost of staff time is important to bear in mind even when the consulting work is done on a contingency basis, or ostensibly for free. Crane of ModusLink Global Solutions is currently interviewing various firms to comb his accounts-payable records for errors and assess his real-estate portfolio for additional savings. With data housed all around the world, though, the company will incur the upfront cost of having a staff person assemble the necessary information, with the risk that no savings emerge. Not to mention that the work is “quite boring — there’s no way around it,” adds Crane.

But the result of a consulting engagement ought to be exciting, in terms of better growth, profitability, or efficiency. Make sure that the consultant takes your company where you want it to go — and that when it gets there, you aren’t shocked by the size of the fare.

Alix Stuart is a senior writer at CFO.

The Big and Small of It

When Compellent CFO Jack Judd was looking for tax help for his small, publicly traded technology company last spring, he auditioned several accounting firms, including one of the Big Four, but ultimately chose a (relatively) smaller firm. “The Big Four are easy choices when you need lots of infrastructure and someone to come in quickly,” he says, but since they were the most expensive and the project wasn’t particularly time-sensitive, Judd went with the smaller firm. It wasn’t just cost that drove his decision; the fact that the people who met him from that smaller firm were also the ones who would actually do the work mattered as well. “An awful lot of my choice was about who I trusted [the most],” says Judd.

Indeed, many CFOs at small firms worry that they will get lost in the shuffle if they go with a big brand name for consulting services. That hasn’t stopped Sentinel Group CFO Ryan Ziemann from hiring global information-technology vendors to help his 30-person health-care-fraud-prevention firm, though. To help ensure good service, he says that he avoids upfront and flat fees and pushes for full contingency pricing whenever possible, so vendors are “strongly incented to perform well.”

So far, it has worked out well, says Ziemann. Not only has one vendor’s software tool helped identify more than $50 million worth of health-care fraud in the past five years, but the vendor’s support team is always available by phone to Ziemann’s staff, and recently helped them develop a special report based on the software’s capabilities at no additional cost.

In general, choosing between a large and a small firm may depend on the project. Big firms are typically good at enterprisewide, global projects and carry much less risk, notes Dan Morris, co-founder of Verasage, a think tank focused on trends in professional services, “but if you want true innovation, you’re much better off with a boutique or even a solo practitioner.” — A.S.